European stocks rallied yesterday, building on the previous day’s gains after recent sharp losses, on the hope that EU leaders will firm up action on tackling the eurozone debt crisis, traders said.
In afternoon trade, London’s benchmark FTSE 100 index gained 1.30 percent to 5,373.64 points, while Frankfurt’s DAX 30 rose 1.22 per cent to 6,408.06 points and in Paris the CAC 40 rallied 1.65 per cent to 3,077.08 points. Madrid won 1.30 per cent while Milan jumped 3.0 per cent.
In foreign exchange deals, the euro fell to $1.2752 from $1.2815 late in New York on Monday.
US stocks opened only slightly higher yesterday despite news that existing home sales increased in April signaling recovery was under way in the distressed US housing market.
In the first five minutes of trade, the Dow Jones Industrial Average was unchanged, the broad S&P 500 index rose 0.19 per cent, while the tech-heavy Nasdaq added 0.16 per cent.
“No significant negative news from Europe and the latest round of rhetoric on how important it is to keep Greece in the eurozone sent investors on a shopping spree, which helped to lift stock prices for the second day,” said trader Anita Paluch at Gekko Global Markets.
“An EU summit on Wednesday (today), where the idea of Eurobonds is supposed to be put on the table despite Germany’s opposition, raises hopes for new debt crisis combating actions, which would include growth promotion.”
Attention is now on an informal meeting in Brussels on Wednesday where the crippling debt crisis that threatens the eurozone project will be top of the agenda.
Ahead of the talks, IMF chief Christine Lagarde said the eurozone had made a “serious improvement” in dealing with its sovereign debt crisis but called for member states to do more to support growth.
“More needs to be done in relation to supporting growth, particularly by way of structural reforms, certainly not by way of suggested stimulus,” Ms Lagarde said at a press conference in London yesterday.
The International Monetary Fund does not believe eurozone countries are in a position to use stimulus to promote growth because “we do not think that the fiscal position of the member states can actually bear that on an aggregate basis,” she said.
Recent improvements include structural reforms in Spain and Italy, and moves to increase the eurozone’s financial firewall, Ms Lagarde said.
Eurozone titan Germany though remains fundamentally opposed to the introduction of eurobonds and this will not change despite growing pressure on Berlin to alter its stance, a government source said Tuesday.
“This is not a new discussion ... we think it is the wrong way,” the source told reporters on the eve of the EU summit. “This is a fundamental position and it also won’t change.”
Greece has returned as the key issue in Europe after polls on May 6 saw 70 per cent of the electorate vote against pro-austerity parties but with no overall winner.